I'm looking at placing some real estate capital gains in a qualified opportunity zone investment. Example: I have 400K in capital gains. I place all 400K in an QOZ investment within 180 days and I account for it with the correct filing etc.
1. How would this show up on my final MAGI number? I think a 1031 exchange would show the capital gains as never having been received, so no MAGI increase. What does the OZ look like on MAGI? Would it show my 400K capital gain + my regular income combined and my OZ filing just means that 400K just isn't taxable (until 2026)?
2. Timing. I see a great QOZ investment I want to jump on before it closes to funding, but the capital gain I want to offset doesn't hit until days later. Can I "pre-invest" that sum? In other words, does timing matter? Must QOZ always follow gain? Or does it just need to happen in the same tax year? How would the IRS even know? I hope that question makes sense.
Thanks for your help!
the code and regs say you have 180 days to invest the gain which begins on the first day the gain would have been recognized for federal income tax purposes if you did not elect to defer the recognition of the gain. therefore, pre-investment is not possible
if you used the QOZ option in year 1 you file both form 8949 to report the sale and form 8997 Initial and Annual Statement of Qualified Opportunity fund. For subsequent years use form 8997 to inform the IRS of the QOF investments and deferred gains held at the beginning and end of the current tax year, as well as any capital gains deferred by investing in a QOF and QOF investments disposed of during the current tax year.
for 2020, Turbotax did not support form 8997 nor could you enter code Z on form 8949 to eliminate the gain being deferred.
MAGI varies depending on what you are asking about.
Regarding MAGI - I'm literally asking how it shows up. Does my MAGI number reduce in proportion to the QOZ investment?
Example: 400K in Capital gain from sale. Net proceeds of 500K. I make a QOZ of 400K of all capital gains. Does the QOZ investment reduce my MAGI number? I'm not asking for a precise calculation, I'm trying to understand impact of QOZ on MAGI.
What would I see in Part 3, line 13? Thanks!